The Housing Finance Corporation (HFC) has undertaken a strategic revision in its management of Non-Performing Loans (NPLs), aiming for a substantial reduction between 2024 and 2026. This revision includes, for the first time, the sale of loans as part of its broader action plan.

According to a memo accompanying the HFC’s 2024 budget, managing NPLs effectively remains a significant challenge and a medium-term priority. Improving the quality of the loan portfolio is essential as it supports the Corporation's robust capital base and strengthens its role in aiding Cypriot families.

The memo notes a consistent level of NPLs with minor variations annually, indicating the portfolio’s resistance to change in management strategies. The portfolio, primarily composed of housing loans, is affected by external factors beyond the Corporation’s control, including the foreclosure framework and amendments to the law governing credit facility sales.

The Corporation acknowledges the substantial pressure high NPL rates and increased provisions for NPLs place on its operations, adversely impacting its credit risk profile. In recent years, it has concentrated on achieving sustainable loan restructurings and leveraging government initiatives aimed at NPL management, secured predominantly by primary residences.

In a decisive move to significantly reduce NPLs from 2024 to 2026, the HFC has revamped its NPL management strategy. This approach includes aggressive reduction measures, such as implementing sales strategies like the Rent-to-Own Plan and portfolio sales, and definitive settlements and restructurings, either through direct negotiations with clients or by applying state-led schemes (e.g., the HOME Plan and the Central Agency for Equal Distribution of Burdens Plan).

As part of its budget and medium-term financial planning for 2024-2026, the HFC has formulated a comprehensive NPL management plan. This plan aims to reduce weighted assets, improve credit risk, and bolster the Corporation’s profitability.

The HFC’s data as of June 2023 indicates NPLs at 273.4 million euros, accounting for 31.12% of its loan portfolio. The Corporation’s goal is to reduce NPLs by half by 2026, targeting a reduction to 123.7 million euros.

The memo also outlines the HFC’s plans for loan sales. In preparation for its upcoming budget and financial framework, the Corporation has identified a portfolio eligible for sale. This portfolio will primarily include loans secured against properties valued above 300,000 euros and non-primary residences.

Notably, a law passed in November last year enables the HFC to sell portfolios of NPLs to credit acquisition companies. This law allows the Corporation to purchase and sell loan portfolios within the scope of the principal law, facilitating the sale of NPLs to legal entities specializing in credit facility acquisitions.